Deck 25: Measuring and Describing the Aggregate Economy

Question 1

Aggregate accounting:

A)is used primarily by microeconomists.
B)provides a way of measuring total or aggregate production.
C)was first developed in the 1970s.
D)cannot be used to measure national consumption.

Answer 1

provides a way of measuring total or aggregate production.

Question 2

The United States produces and sells millions of types of products. To add them up to a single aggregate, each good is weighted by its:

A)cost of production.
B)market price.
C)utility to consumers.
D)contribution to corporate profits.

Answer 2

market price.

Question 3

If an economy is comprised of two goods and the price of one good rises by 5 percent and the price of the second good rises 3 percent, a possible rate of inflation for the economy is 5 percent.

Answer 3

False

Question 4

Net exports is the key to the equality of aggregate expenditures and aggregate income.

Question 5

Gross domestic product (GDP)can be calculated using either the expenditure method or the income method.

Question 6

GDP is the:

A)market value of an economy's production of final goods and services in a one year period.
B)sum of coins, bills, and demand deposits circulating in an economy one year period.
C)total expenditures of the federal government over the period of one year.
D)market value of an economy's production of all goods and services in a one year period.

Question 7

Gross domestic product (GDP)is the total market value of the final goods and services produced by an economy in a one-year period.

Question 8

Because official price indexes do not account for some improvements in product quality, official estimates of real GDP overestimate the true increase in real output.

Question 9

Comparisons of per capita gross domestic product across countries provide a very good measure of how similar living standards are across countries.

Question 10

Aggregate accounting enables us to measure and analyze how much a nation is producing and consuming.

Question 11

To compute GDP, you must add up the value of all the goods and services produced in a country in a year.

Question 12

If an economy produces 50 oranges sold at $1 each and 100 bananas at $0.50 each, using GDP as the measure of output:

A)oranges are weighted as being 2 times more important than bananas.
B)oranges are weighted as being 1/2 as important as bananas.
C)bananas are weighted as being 2 times more important than oranges.
D)bananas are weighted as being 1/2 as important as oranges.

Question 13

Your visit to the dentist, college tuition, and any commissions earned by a used car salesman are all included in GDP.

Question 14

Nominal GDP can never be equal to real GDP.

Question 15

T-accounts reflects double-entry bookkeeping that keeps income and production equal.

Question 16

Gross domestic product equals the sum of consumption, investment, and government purchases.

Question 17

Which of the following statements about aggregate accounting is false?

A)It provides a way of measuring total, or aggregate, production.
B)It provides a way of measuring how much a nation is producing and consuming.
C)It did not exist before the 1930s because economists focused on microeconomics before the 1930s.
D)It is the best way to measure social welfare for an economy.

Question 18

When news reports state that inflation has increased, they could be referring to a change in the GDP deflator.

Question 19

Inflation is a sustained rise in the general price level.

Question 20

If measurement errors did not exist, real per capita GDP would be an undeniably accurate measure of human welfare.

Question 21

Investment includes:

A)an increase in corporate stock volumes during the year.
B)the purchase of medical supplies by the National Guard.
C)an increase in government purchases.
D)an increase in business inventories.

Question 22

If you decide not to spend $1,000 you earned at your summer job but instead intend to buy shares in a mutual fund, in terms of aggregate economic accounting you would be:

A)consuming.
B)saving.
C)investing.
D)transferring.

Question 23

In 2008, the value of the stocks listed on the New York Stock Exchange decreased tremendously. As a direct result:

A)both U.S. GDP and U.S. GNP declined by the same amount.
B)U.S. GDP declined by the amount of the stock market decline but U.S. GNP was unaffected.
C)U.S. GNP declined by the amount of the stock market decline but U.S. GDP was unaffected.
D)neither U.S. GDP nor U.S. GNP were affected.

Question 24

Using the expenditure approach, gross domestic product equals:

A)gross national product.
B)gross national product minus net exports.
C)the sum of consumption, investment, government purchases.
D)the sum of consumption, investment, government purchases, and net exports.

Question 25

If U.S. imports of goods and services exceed exports, U.S.:

A)GDP is less than the sum of consumption, investment, and government purchases.
B)GDP exceeds the sum of consumption, investment, and government purchases.
C)net exports are positive.
D)GDP equals the sum of consumption, investment, and government purchases.

Question 26

Which of the following equations is the correct equation for GDP?

A)GDP = C + I + G
B)GDP = C + I + G + X + M
C)GDP = C + I + G - X - M
D)GDP = C + I + G + X - M

Question 27

Conceptually, a country's GDP equals the:

A)sum of the value of its final output and the value of the intermediate goods used to produce that output.
B)difference between the value of its final output and the value of the intermediate goods used to produce that output.
C)sum of the value added at all stages of production.
D)sum of the value of all the intermediate goods used to produce final output.

Question 28

A change in business inventories is:

A)not counted in GDP because it does not represent final sales.
B)counted in GDP as investment.
C)counted in GDP as consumption.
D)counted in GDP as net exports.

Question 29

Which of the following would not be included in personal consumption expenditure?

A)College tuition
B)Medical expenses
C)Federal police protection
D)A movie ticket

Question 30

In what category is the purchase of a computer by a person for household use in national income accounting?

A)It is counted as consumption.
B)It is counted as consumption if the computer was manufactured in the United States; otherwise it is ignored.
C)It is included as part of investment.
D)The purchase is not included at all, but the value of services the computer gives is included in consumption each year.

Question 31

If an economy produces 100 pencils valued at $0.25 each and 500 sheets of ruled paper at $0.01 each, using GDP as the measure of output:

A)pencils are weighted as being 25 times more important than ruled paper.
B)pencils are weighted as being 5 times more important than ruled paper.
C)ruled paper is weighted as being 25 times more important than pencils.
D)ruled paper is weighted as being 5 times more important than pencils.

Question 32

Personal consumption expenditures consist of:

A)household and individual purchases of services and durable and nondurable goods.
B)foreign investments in the United States.
C)foreign plus domestic investments.
D)domestic investments.

Question 33

If U.S. net exports are positive, then U.S.:

A)GDP is less than the sum of consumption, investment, and government purchases.
B)GDP exceeds the sum of consumption, investment, and government purchases.
C)imports must exceed U.S. exports.
D)GDP equals the sum of consumption, investment, and government purchases.

Question 34

The total market value of all final goods and services produced in a country in a year is:

A)NNP.
B)GNP.
C)NDP.
D)GDP.

Question 35

In what category of national income accounting is the purchase of a computer by a business?

A)It is ignored because computers are considered intermediate goods-an input in the production of other goods and services.
B)It is considered consumption.
C)It is a form of investment spending.
D)It is a form of savings.

Question 36

If an economy produces 100 pencils and 100 pens, and pencils sell for twice as much as pens:

A)pencils are weighted as twice as important in the economy compared to pens.
B)pens are weighted as twice as important in the economy compared to pencils.
C)pencils are weighted as equally important in the economy as pens.
D)nothing can be said about the relative importance of pens and pencils in the economy.

Question 37

The largest expenditure component of GDP is:

A)consumption.
B)investment.
C)net exports.
D)government spending.

Question 38

Negative net exports means:

A)GDP is lower than it would have been if net exports had equaled zero.
B)GDP is higher than it would have been if net exports had equaled zero.
C)exports exceed imports.
D)depreciation exceed investment.

Question 39

To calculate GDP:

A)add the quantity of all final goods and services produced in an economy in a year.
B)add the quantity of all goods and services sold in an economy in a year.
C)weight the output of each final good and service produced in an economy in a year by its price in that year and then total the result.
D)weight the output of each good and service produced in an economy in a year by its price in that year and then total the result.

Question 40

Net exports are defined as:

A)GDP minus exports.
B)exports less imports.
C)imports less exports.
D)exports plus imports.

Question 41

Which of the following is a part of GDP?

A)The value of a homemaker's services
B)The value of a haircut
C)The value of an old car purchased during a year
D)The value of an existing house sold during a year

Question 42

Which of the following is a flow concept?

A)Body weight
B)Wealth
C)Gallons of water in a pool
D)Expenditures

Question 43

Which of the following would increase this year's GDP?

A)A mother quits her job to take care of her newborn child
B)A commission charged by your broker when you sold 100 shares of Borden stock
C)A $10,000 inheritance from Aunt Mary
D)Receipts from a yard sale

Question 44

Great Basin National Park, the only national park wholly within the borders of Nevada, occupies 77,180 acres and contains 42 known caves. About 90,000 people visit the park each year. It has 25 permanent staff who, with the seasonal staff, collect $280,00 in fees a year, mostly for the 2,400 cave tours. The park also has about 80 volunteers who contribute 9,400 hours of work a year. Because the park surveys for springs in the 25 watersheds, the park service does not burn any acreage, which is part of standard maintenance in some parks. Some of the data are flow measurements and some are stock measurements. An example of a flow measurement is:

A)staff positions in the park.
B)acres in the park.
C)cave tours given.
D)caves in the park.

Question 45

The sum of the value added by all of a nation's individuals and businesses in a year equals:

A)the value of intermediate products.
B)the value of investment goods.
C)total profits.
D)GDP.

Question 46

How does stock differ from flow?

A)A flow concept has meaning over a specified period of time, while a stock concept is a value at a point in time.
B)A flow concept is a value at a point in time, while a stock concept has meaning over a specified period of time.
C)They do not differ; both flow and stock concepts have meaning only over a specified period of time.
D)The do not differ; both flow and stock concepts are values at a point in time.

Question 47

Which of the following is not counted in GDP?

A)The services provided by a maid
B)An increase in inventories held by firms
C)The change in Social Security payments received by individuals
D)The commissions earned by a salesman

Question 48

Which of the following is a stock concept?

A)Income
B)Wealth
C)Rent
D)Expenditures

Question 49

For the purposes of calculating GDP, investment includes:

A)the value of new residential construction.
B)purchases of stock.
C)purchases of old automobiles.
D)purchases of government bonds.

Question 50

GDP is a:

A)stock concept and refers to the market value of all output sold.
B)stock concept and refers to the market value of final output.
C)flow concept and refers to the market value of all output sold.
D)flow concept and refers to the market value of final output.

Question 51

Great Basin National Park, the only national park wholly within the borders of Nevada, occupies 77,180 acres and contains 42 known caves. About 90,000 people visit the park each year. It has 25 permanent staff who, with the seasonal staff, collect $280,00 in fees a year, mostly for the 2,400 cave tours. The park also has about 80 volunteers who contribute 9,400 hours of work a year. Because the park surveys for springs in the 25 watersheds, the park service does not burn any acreage, which is part of standard maintenance in some parks. Some of the data are flow measurements and some are stock measurements. An example of a stock measurement is:

A)fees collected.
B)number of visitors.
C)number of watersheds.
D)number of acres burned.

Question 52

Government purchases that are counted as part of GDP can be less than the government's total budget because:

A)government purchases are not counted as part of GDP.
B)taxes are not counted as part of GDP.
C)transfer payments are not counted as part of GDP.
D)only the budget surplus or deficit is counted as part of GDP.

Question 53

The value of intermediate goods is:

A)included in both GDP and GNP.
B)included in GDP but not GNP.
C)included in GNP but not GDP.
D)excluded from both GDP and GNP.

Question 54

Which of the following is an example of an intermediate product?

A)A pair of skis sold by a sporting goods retailer to a skier
B)A share of IBM stock
C)The lumber produced by Boise Cascade and sold to a builder of old houses
D)An antique car sold to the highest bidder

Question 55

The reason economists include only the value of final goods and services when they calculate GDP is that intermediate goods:

A)do not create value added.
B)do not add to economic welfare.
C)have no social value.
D)would be double counted otherwise.

Question 56

Value added is calculated by:

A)subtracting the cost of materials used in production from the value of sales.
B)adding the cost of materials used in production to the value of sales.
C)subtracting the value of sales from the cost of materials used in production.
D)adding the value of output to the value of inputs.

Question 57

Double counting in the national income accounts will occur if GDP is computed by summing up:

A)final output sales.
B)value added.
C)all sales.
D)the income earned by a country's residents.

Question 58

Suppose the value of your home increases from $100,000 to $125,000. If you continue to live in your home, the increase in its value:

A)adds nothing to GDP.
B)increases GDP by $25,000.
C)increases GDP by $100,000.
D)increases GDP by $125,000.

Question 59

Double counting in the national income accounts will be avoided if GDP is computed by totaling all:

A)sales of final output.
B)sales of final output and intermediate goods.
C)sales.
D)production costs.

Question 60

Government expenditures for Social Security and unemployment insurance are, for GDP accounting purposes, considered:

A)transfers, and are included in government spending as part of GDP.
B)transfers, and are not included in government spending as part of GDP.
C)purchases, and are included in government spending as part of GDP.
D)purchases, and are not included in government spending as part of GDP.

Question 61

While net domestic product (NDP)is theoretically a better measure of economic activity than gross domestic product (GDP), GDP is used more frequently because:

A)consumption, which is included in NDP but not GDP, is difficult to measure.
B)investment, which is included in NDP but not GDP, is difficult to measure.
C)net exports, which are included in NDP but not GDP, are difficult to measure.
D)depreciation, which is included in NDP but not GDP, is difficult to measure.

Question 62

Depreciation:

A)estimates the decrease in value of capital goods due to wear and tear over the year.
B)is the reduction in business inventories per year.
C)represents a firm's expenditure to add to its capital stock.
D)is the decline in the value of a firm's stock.

Question 63

Net domestic product equals:

A)consumption + investment + government purchases + net exports - net foreign factor income.
B)consumption + investment + government purchases + net exports - depreciation.
C)consumption + investment + government purchases + net exports - profits.
D)consumption + investment + government purchases + net exports - change in inventories.

Question 64

GDP is $7 trillion. If consumption is $3.5 trillion, investment is $1.4 trillion, and government purchases are $2.1 trillion, then:

A)exports are equal to imports.
B)exports exceed imports.
C)imports exceed exports.
D)net exports cannot be determined from the available information.

Question 65

Refer to the table shown. $\begin{array} { |l | c |} \hline & \text { In trillims of dallars } \\\hline \text { Consurnotion } & 4.2 \\\hline \text { Irvestment } & 1.2 \\\hline \text { Government Purchases } & 1.5 \\\hline \text { Depreciation } & 0.4 \\\hline \text { GDP } & 6.6 \\\hline\end{array}$ What are the economy's net exports?

A)-$0.4 trillion
B)$0.4 trillion
C)$0.8 trillion
D)There is not sufficient information to compute net exports.

Question 66

Which of the following is not a part of U.S. GDP?

A)The payments for an insurance policy on an old BMW sold by a U.S. company
B)The value of a BMW imported from Germany
C)The value of a BMW produced in the United States
D)The commissions earned by a BMW dealership in the United States

Question 67

For the purposes of calculating GDP using the expenditure approach, which of the following payments is not included in the government expenditures component?

A)Social Security payments
B)The wages paid by a local government to its road crew
C)The wages paid by a state government to the workers in its welfare department
D)The federal government's purchase of a submarine from a shipbuilder

Question 68

If gross investment is $2,593 billion and net investment is $873 billion, depreciation is:

A)$873 billion.
B)$1,720 billion.
C)$2,593 billion.
D)$3,466 billion.

Question 69

Which of the following is not included in GDP but is included in GNP?

A)A foreign company's production in the United States
B)Income of a citizen of Germany working in the United States
C)Economic activity of U.S. citizens working abroad
D)Sales of a good by one firm to another firm

Question 70

Refer to the table below. What is the economy's gross domestic product? $$\begin{array}{| l | c| } \hline &\text { In trillims of dollars }\\\hline \text { Consurngtion } & 5.2 \\\hline \text { Irnvestment } & 2.7 \\\hline \text { Government Purchases } &2.6 \\\hline \text { Transfer payments } & 0.6 \\\hline \text { Exports } & 0.6 \\\hline \text { Imports } & 0.6 \\\hline\end{array}$$

A)$10.5 trillion
B)$11.1 trillion
C)$11.7 trillion
D)$12.3 trillion

Question 71

Net foreign factor income is the:

A)income earned from the domestic economy by foreign factors.
B)income earned abroad by domestic factors.
C)difference between the income earned abroad by domestic factors and the income earned domestically by foreign factors.
D)difference between the value of a country's exports and imports.

Question 72

GNP is the:

A)aggregate output of the citizens and businesses of an economy in a one-year period.
B)aggregate final output of the citizens and businesses of an economy in a one-year period.
C)total market value of all goods and services produced in an economy in a one-year period.
D)total market value of all final goods and services produced in an economy in a one-year period.

Question 73

Refer to the table shown. $\begin{array} { |l | c |} \hline & \text { In trillims of dallars } \\\hline \text { Consurnotion } & 4.2 \\\hline \text { Irvestment } & 1.2 \\\hline \text { Government Purchases } & 1.5 \\\hline \text { Depreciation } & 0.4 \\\hline \text { GDP } & 6.6 \\\hline\end{array}$ What is the economy's net domestic product?

A)$6.2 trillion
B)$6.6 trillion
C)$7.0 trillion
D)Net domestic product cannot be computed without the data for net exports.

Question 74

If depreciation is zero, then net domestic product:

A)exceeds gross domestic product.
B)equals gross domestic product.
C)is less than gross domestic product.
D)cannot be defined.

Question 75

Net domestic product:

A)is a better measure of output than gross domestic product because it controls for depreciation.
B)is a worse measure of output than gross domestic product because it is distorted by depreciation.
C)cannot be computed since economists have no measure of depreciation.
D)increases as depreciation increases.

Question 76

Transfers of assets, such as stock sales are:

A)included in GDP because they raise domestic production.
B)included in GDP because they increase domestic wealth.
C)not included in GDP because they do not increase domestic production.
D)not included in GDP because they do not increase domestic wealth.

Question 77

For the purposes of calculating GDP using the expenditure approach, which of the following is not included in the government purchases account?

A)Government purchases of pencils
B)The payroll of the federal government
C)Welfare payments to the poor
D)The government's purchase of a computer

Question 78

Refer to the table shown. $\begin{array} {| l | c| } \hline & \text { In trillims of dallars } \\\hline \text { Consumption } & 3.5 \\\hline \text { Irvestment } & 1.2 \\\hline \text { Government Purchases } & 1.8 \\\hline \text { Exports } & 0.6 \\\hline \text { Imports } & 0.4\\\hline\end{array}$ What are the economy's net exports?

A)?$0.4 trillion
B)$0.2 trillion
C)$1.0 trillion
D)?$0.2 trillion

Question 79

The difference between gross domestic product (GDP)and gross national product (GNP)is that GDP:

A)measures the economic activity that occurs within a country while GNP measures the economic activity of all the people and businesses of a country.
B)measures the economic activity of all the people and businesses of a country, while GNP measures the economic activity that occurs within a country.
C)excludes exports and imports while GNP does not.
D)includes exports and imports while GNP does not.

Question 80

Refer to the table shown. $\begin{array} {| l | c| } \hline & \text { In trillims of dallars } \\\hline \text { Consumption } & 3.5 \\\hline \text { Irvestment } & 1.2 \\\hline \text { Government Purchases } & 1.8 \\\hline \text { Exports } & 0.6 \\\hline \text { Imports } & 0.4\\\hline\end{array}$ What is the economy's GDP?

A)$6.5 trillion
B)$7.1 trillion
C)$6.7 trillion
D)$6.1 trillion